Policy Provisions, Options and Riders
In most states, the period of contestability for material misrepresentations made on a life insurance application is:
In most states, the incontestable clause is a 2-year period. From the date of application, the insurer has 2 years to contest any material misrepresentations made on the application. The correct answer is: 2 years
All of the following statements are true regarding the APL provision in a life insurance policy, EXCEPT:
An APL is like any other policy loan, and if not repaid will reduce the death benefit by the amount of the premium loan with interest. The correct answer is: The APL is unlike other policy loans, and if not repaid, it will not reduce the death benefit by the amount of the premium loan with interest.
Why are STOLI arrangements ethical dilemmas?
STOLI and IOLI arrangements are ethical dilemmas because the investor or stranger does not have insurable interest in the continued life and well being of the insured. They want the insured to die very soon, so that they will receive the policy death benefits. Often times, once the policy has been sold to a stranger/investor, the insured will be contacted several times a year to see if he/she has died. The correct answer is: Because the investor/stranger does not have an insurable interest in the insured
The ____________ clause states that the insurance coverage is in place on application and the payment of the first premium.
The consideration clause grants coverage when the application has been made and the first premium paid. The correct answer is: Consideration
The entire contract clause of a life policy provides all of the following, EXCEPT:
The entire contract clause prevents the producer and the policyholder from amending the policy. The correct answer is: Permission for producer to make changes to the policy
All of the following are part of the entire contract provision, EXCEPT:
The insurer's promise to pay benefits in exchange for the policyowner's premium payments is part of the consideration clause. The correct answer is: States that the insurer's promise to pay benefits is contingent upon the policyowner's premium payments
How long is the loan period on STOLI arrangements?
The loan period is typically 2 years on STOLI arrangements. The correct answer is: 2 years
Julie applies for a health insurance policy. Her consideration consists of:
The applicant's consideration consists of the statements made on the application to the best of the applicant's knowledge, and the applicant's initial premium. The correct answer is: Statements made on the application and initial premium
The applicant's statements in the application are considered ______________ and not _____________, unless fraudulent.
The applicant's statements in the application are considered representations and not warranties, unless fraudulent. The correct answer is: representations; warranties
Which of the following best describes the automatic premium loan provision of a life insurance policy?
The automatic premium loan provision permits the insurer to automatically use the policy cash value to pay an overdue premium. The correct answer is: The insurer will automatically use the policy cash value to pay an overdue premium.
The automatic premium loan provision is best described by the following:
The automatic premium loan provision uses the policy's cash value to pay premiums so the policy does not lapse due to nonpayment of premiums. The correct answer is: Uses the cash value to pay unpaid premiums, thereby keeping the policy in force
A policyholder has the right to examine the policy purchased. If the policy owner returns the policy to the insurer within the specified time, to be cancelled, he/she can expect:
The policyholder can expect a full refund if the policy is returned within the specified time. The correct answer is: A full refund
Barney dies during the grace period of a life insurance policy. The insurer will:
Coverage is still in force during the grace period. The insurer will deduct the overdue premium from the death benefit if the insured dies during the grace period. The correct answer is: Pay the death benefit minus the overdue premium
What part of the insurance contract contains the insurer's consideration?
The insuring clause contains the insurer's promise to pay benefits in the event of a covered loss. The consideration clause states that a policyowner must pay premium in exchange for the insurer's promise to pay benefits. The correct answer is: Insuring clause
Jennifer is trying to add her insurance premium payments to her budget. All of the following are accepted payment mode options, EXCEPT:
When she feels like it is not a payment option for life insurance policies. The correct answer is: When she feels like it
Withdrawals or partial surrenders can be made on the cash value of a universal life policy. Which of the following is specified in the policy?
The policy will specify how much can be withdrawn, at what frequency the withdrawals can be made, and the service charges applicable to the withdrawal. There is no presumption that the withdrawal will be repaid. The correct answer is: How much can be withdrawn
Of the following individuals, who has the right to change the beneficiary designations in a life insurance policy?
The policyowner has all rights of ownership, including changing the beneficiary designations in a life insurance policy. The correct answer is: The policyowner
The stipulated period of time, allotted by the insurance company, to allow a policyholder to make an overdue payment while the policy remains in force and coverage is provided is called the _____________.
The grace period is a stipulated period of time that policyowners are allotted to pay overdue premiums. The correct answer is: Grace period
Gerry forgets to pay his life insurance premium, and the policy lapses. If he is within the reinstatement period and decides to reinstate his policy, he will be required to take all of the following actions, EXCEPT:
When the insured reinstates a life insurance policy, all of the following must be done: 1.) Pay all past-due premiums; 2.) Pay any back-due interest on outstanding policy loans; and 3.) provide proof of insurability. The correct answer is: Surrender or cancel the policy within 10 years of the reinstatement date
Dianne's life policy lapsed due to unpaid premiums. Which of the following statements is not true about conditions to reinstate a policy?
Most states allow reinstatement up to three (3) years after the lapse of a policy. The correct answer is: The policy has not been expired for more than 1 year.
Which type of assignment is partial and temporary?
A collateral assignment is a partial and temporary transfer of ownership rights and is usually used for securing a loan. The correct answer is: Collateral
If a policy loan is unpaid, the automatic premium loan provision has the effect of deducting the amount of the loan with interest from the death benefit. What should the policyowner do to avoid this reduction in the death benefit?
To prevent the death benefit from being reduced, all outstanding loans plus interest must be repaid. The correct answer is: Repay the loan with interest
Hank wants to understand his rights as the owner of a life insurance policy. All of the following are rights under the owners' rights provision, EXCEPT:
Changing the grace period on a policy is not an owners' right. The correct answer is: Changing the grace period
Once a life insurance policy has been in force for two years, the incontestable clause prevents the insurer from denying a claim or canceling the policy for anything other than nonpayment of premiums. Which of the following is NOT a reason for voiding a policy during the contestable period?
Misstatement of age is not a reason to void a policy. The policy can be rewritten to reflect the premium for the correct age. The correct answer is: Misstatement of age
All of the following are ownership rights, EXCEPT:
Only an authorized officer of the insurer can make changes to the policy; however, a policyowner can request a policy change. The correct answer is: Right to make changes to the policy
Which provision prevents the insurer from making changes to a contract by citing documents not included in the policy itself?
The Entire Contract provision states: The insurance policy itself (including any riders and endorsements/amendments) and the application, if attached to the policy, comprise the entire contract between all parties. This prevents the insurer from making changes by using anything not included in the policy. The correct answer is: Entire Contract provision
The insuring clause of a policy includes all of the following, EXCEPT:
The amount of the policy premium is not part of the insuring clause. The correct answer is: The amount of the policy premium
Which clause states that the policy owner must pay something of value for the insurer's promise to pay benefits?
The consideration clause states that a policyowner must pay a premium in exchange for the insurer's promise to pay benefits. The correct answer is: Consideration clause
Marcella purchases a modified life insurance policy at the age of 31. Thinking she could get a slightly better rate on her policy, she lists her age as 21. If the insurance company discovers the error upon Marcella's death, what action will the insurance company take?
The insurance company will pay the death benefit, but it will be reduced based on what the premium should have been with Marcella's correct age. Take note: even an intentional misstatement of age is not considered material enough to void the policy. The correct answer is: Pay the death benefit based on Marcella's actual age
This provision identifies the named insured, type, and amount of coverage provided by the policy:
The insuring clause is found on the policy face (title page). It contains the insurer's basic promise to pay benefits. The insuring clause names the individuals covered by the policy, the policy effective date, and period of coverage. The correct answer is: Insuring clause
Paul buys a $50,000 whole life insurance policy. After some time, he has $20,000 cash value in the policy. The interest rate on his policy is 7%. Paul decides to take out a policy loan in the amount of $10,000 on January 1, and decides to prepay the interest that would be due on the loan. That year he does not repay the loan. If Paul dies on December 31 of that year, what is the most his beneficiary will receive?
The most Paul's beneficiary will receive is the face amount minus the policy loan (interest is not deducted because Paul prepaid the interest for the year). The correct answer is: $40,000
What is the primary purpose of the entire contract provision in a life insurance policy?
The primary purpose of the entire contract clause is to make sure that the policyholder has all documents pertaining to the policy in their possession. The correct answer is: Provide assurance that the policyholder has all necessary policy documents in their possession
James is past due on his life insurance premium by 5 days. His policy has a 30 day grace period. If James dies on day 15 of his grace period, what would the beneficiary receive?
The beneficiary would receive the full face amount, minus any past due premium. The correct answer is: The full face amount, minus any past due premium
Which of the following provisions is not optional?
The misstatement of age clause is a required provision which is intended to benefit the policyowner. The correct answer is: Misstatement of age clause
Which of the following policies allows partial withdrawals or surrenders?
Universal life policies (including variable universal) allow policyowners to take partial withdrawals or surrenders. The correct answer is: Variable universal
Gail has no children and has decided to make a gift of her life insurance to her alma mater. This type of assignment is voluntary and also usually absolute and complete. Specifics of this type of assignment include:
With this type of assignment, all rights are assigned, the assignee can use the cash value and the assignment is usually permanent. The correct answer is: All of the above
Transfer of ownership rights from one person to another is described by the:
The assignment clause specifies the policyowner's right to transfer ownership rights from one person to another. The correct answer is: Assignment clause
If no beneficiary is named in the insuring clause of a life policy, what happens to the benefit proceeds?
If no beneficiary is designated on a life policy, the proceeds go to the insured's estate. The correct answer is: The proceeds go to the estate of the insured.
When Dakota's life insurance policy was written, it stated on the policy that Dakota was male. However, Dakota is female. On average, women tend to live several years longer than men. When Dakota died this misstatement was discovered. How did this impact the policy?
On average, women tend to live several years longer than men. This is why life insurance premium rates tend to be lower for women. The death benefit would be increased. The correct answer is: The death benefit was increased.
Which of the following does NOT happen if an insured dies during the grace period of a policy?
The insurance company is NOT relieved of the responsibility to pay a benefit in the event the insured dies during the grace period. The correct answer is: The insurance company is relieved of any responsibility to pay a benefit.
